2023-10-04 04:43
AUD/USD OUTLOOK AUD/USD sinks to its lowest level since November 2022 as U.S. yields vault to fresh multi-year highs. This article looks at key technical levels worth watching in the coming days. IG client sentiment data points to further weakness for the Aussie. AUD/USD TECHNICAL ANALYSIS AUD/USD fell sharply and sank to its lowest level in nearly a year on Tuesday, weighed down by soaring U.S. rates and risk-off sentiment on Wall Street. By way of context, bond yields vaulted to fresh multi-year highs during the U.S. trading session after better-than-expected U.S. labor market data (JOLTS) strengthened the case for further Fed tightening and higher interest rates for longer. In terms of technical analysis, AUD/USD accelerated its descent and headed towards the psychological 0.6300 mark after breaching support at 0.6350 earlier in the day. With sellers firmly in control of the market, it may be a matter of time before we see an attack on 0.6275. While prices are likely to establish a base in this area, a breakdown could open the door to a retest of last year's lows. In the event that AUD/USD turns around and begins to recover, initial resistance is located near the 0.6350 region. Successfully piloting above this key ceiling could lure new buyers into the market, rekindling upward momentum and setting the stage for a possible move toward 0.6460. On further strength, the bulls may become emboldened to launch an assault on the 0.6500 handle. AUD/USD TECHNICAL CHART AUD/USD Chart Prepared Using TradingView AUD/USD MARKET SENTIMENT Sentiment data from IG shows that 84.57% of traders are net-long, with the bullish-to-bearish ratio standing at 5.48 to 1 at the time of writing. The tally of clients who are net long has risen by 18.19% since yesterday and by 7.42% over the previous week. Meanwhile, the number of traders net-short is down 22.28% from the previous session and 22.14% from seven days ago. Taking a contrary stance on crowd sentiment, the growing bullish positions on AUD/USD, in comparison to both yesterday's tally and the levels witnessed last week, signal the potential for continued weakness in the currency pair. https://www.dailyfx.com/news/forex-australian-dollar-forecast-aud-usd-in-freefall-as-us-yields-vault-to-new-heights-20231003.html
2023-10-04 04:42
GOLD, RETAIL TRADER POSITIONING, TECHNICAL ANALYSIS – IGCS UPDATE Gold 2-week drop at -5.3%, most since early July Retail traders keep increasing bullish exposure This continues to support a bearish contrarian bias So far, over the past 2 weeks, gold prices have sunk about -5.3 percent. This is setting the stage for the worst 10-day period for XAU/USD since early July. In response, retail traders continue to increase their bullish exposure in the yellow metal. This can be seen by taking a look at IG Client Sentiment (IGCS), which often functions as a contrarian indicator. With that in mind, will gold continue lower? Gold Sentiment Outlook - Bearish The IGCS gauge shows that about 75% of retail traders are net-long gold. Since most of them remain biased to the upside, this continues to hint that prices may fall down the road. This is as upside bets increased by 0.6% and 2.25% compared to yesterday and last week, respectively. With that in mind, the combination of overall positioning and recent changes produces a stronger bearish outlook. XAU/USD Daily Chart On the daily chart, gold has confirmed a breakout under the midpoint of the Fibonacci retracement level of 1848.37. This followed a push under near-term rising support from February and a bearish Death Cross between the 50- and 200-day moving averages. Now, immediate support appears to be the February low of 1804.78. Breaking lower exposes the 78.6% Fibonacci retracement level of 1714.83 on the way towards the 1614 – 1628 support zone, which was established towards the end of last year. Meanwhile, if prices turn higher this places the focus back on 1848 before the 1884 inflection point comes into focus. Chart Created in Trading View https://www.dailyfx.com/analysis/gold-price-update-xau-usd-2-week-performance-set-for-worst-since-early-july-20231003.html
2023-10-04 04:33
QUANTIFYING THE US DOLLAR SMILE THEORY – SPECIAL REPORT: The US Dollar has a unique reserve currency role in foreign exchange markets This means USD tends to rise when the local economy greatly grows and falls You will get to learn about the Dollar Smile Theory, backed by economic data A “floating” currency – or one that is influenced by the natural forces of the market - tends to have a positive relationship with its economy. In other words, if growth is expected to outperform and bolster inflation, causing the central bank to raise interest rates, that tends to boost the currency and vice versa. There are always exceptions, however, such as the US Dollar. Have you ever heard of the “Dollar Smile Theory”? This is a concept that helps explain why the US Dollar tends to rise when the economy is not only strongly outperforming, but also when it is experiencing trouble, such as a recession. Everything in between these two extremes is where the currency often finds itself under pressure. To understand why this relationship exists, you need to have a basic understanding of the US Dollar’s unique role in global financial markets. It is the global reserve currency. According to the Bank for International Settlements, in 2019 the USD was used in about 90% of global FX transactions. This means it is the world’s most liquid trading instrument. The saying goes when the US sneezes, the world catches a cold. During times of economic stress, flight to safety means traders often need to liquidate market positions. Their go-to choice is often US Dollars, making it a haven-linked trading instrument. This influx of demand helps explain why the currency tends to rise during recessionary periods. Compared to a handful of assets, the US Dollar tends to do the best during the onset of recessions in the United States. The chart below visualizes the “Dollar Smile Theory”. But, how can you use this information to your advantage? Well, the purpose of this article is to quantify the concept and show you how this relationship works in the real world. I will be looking at the dollar’s interaction with the following economic data: gross domestic product (GDP), the unemployment rate, ISM manufacturing PMI, and vehicle sales. By the end of the article, hopefully, you can walk away with a better understanding of USD. US Dollar Smile Theory Setting Some Ground Rules Before diving into economic data, let us set some ground rules. The first is that all the data is quarterly since 1976 expressed in year-over-year terms. The second is that for each economic indicator, I have removed extreme outliers (beyond +- 3 standard deviations from the average). What is left behind is underlying data matching an underlying US Dollar. This helps increase the statistical significance and reduce variability. Also, for the most part, each economic indicator will have outliers removed from different quarters. Finally, I will be using the Bloomberg Correlation-Weighted US Dollar Index (BCWI). This is because I want to capture the general movement in the currency as opposed to a given exchange rate. Testing Gross Domestic Product (GDP) Can you spot the “U-shaped” relationship between GDP (or economic growth) and the US Dollar below? That is the smile theory put into action with real economic data. The curve can be broken down into two green zones on the left and right (where USD is expected to be positive for given values of GDP), and a red zone (where the currency is anticipated to weaken). Somewhere between 1.5% – 4.0% GDP (Y/Y) is the “damage” zone for USD, or when the currency is seen falling compared to a year ago. Values of growth outside of this range show USD rising on average. It should be noted that there is a plethora of factors that can impact how the USD performs in a quarter compared to a year ago. That is why sometimes you will see the dollar doing well around the “red zone” of GDP and poorly in the “green zone”. The purpose of this study is to focus on just the economic indicator alone, highlighting a non-linear relationship with the US Dollar. Testing the Unemployment Rate What about the unemployment rate? Like GDP, there is also a “U-shape” relationship with the US Dollar. The tricky thing here is that you need to think about unemployment in reverse terms compared to GDP. When the unemployment rate is rising, that is not good for an economy and vice versa. In this data, it seems the “danger” zone for the US Dollar is when the unemployment rate is seen performing somewhere between -5% and +25% (Y/Y). When this economic indicator clocks in outside of this range, the US Dollar has historically tended to rise against its major counterparts. Unemployment Rate YoY Quarterly Since 1976 (Outliers Removed) Testing ISM Manufacturing PMI Now let us look at ISM Manufacturing PMI to gauge the impact of activity in the industrial sector on the currency. Here too you can find a “U-shaped” relationship. It seems that the “danger” zone for the US Dollar is when this indicator performs -5% to +30% (Y/Y). Outcomes outside of this range seem to open the door for the US Dollar to outperform. ISM Manufacturing PMI YoY Quarterly Since 1976 (Outliers Removed) Testing Vehicle Sales Finally, I will wrap this up with the total number of new vehicle sales, expressed in year-over-year terms. Just like GDP, the unemployment rate and ISM manufacturing PMI, you can also see a “U-shaped” relationship with the US Dollar. The “danger” zone for the currency seems to occur when vehicle sales report between -7.5% and +7.5%. Meanwhile, the US Dollar on average tends to appreciate when outcomes are outside of this zone. Vehicle Sales YoY Quarterly Since 1976 (Outliers Removed) Conclusion With that in mind, hopefully, you have a better idea of what the US Dollar Smile Theory is and how it works in real life. The key takeaway is that the currency tends to appreciate handsomely when economic data greatly outperforms and significantly underperforms, such as during recessions. Somewhere in-between these extreme outcomes are where the currency tends to weaken, and I tried to quantify that for you. If you have enjoyed this special report, feel free to follow me on Twitter for ongoing updates! https://www.dailyfx.com/news/us-dollar-smile-theory-how-does-economic-resilience-or-recession-drive-usd-20230417.html
2023-10-04 04:30
Market Recap The significant upside surprise in US job opening numbers for August (9.61 million vs 8.8 million expected) prompted another negative session in Wall Street overnight, with a resilient labour market deemed to be providing more room for the Federal Reserve (Fed) to keep rates high for longer. US Treasury yields continued with their ascent, with the US 10-year yields at 4.8%. Aside, the VIX is at its four-month high, hovering just below its key 20 level – a general divide between more risk-on and risk-off territory. Ahead, the US Automatic Data Processing (ADP) private payrolls data and US services purchasing managers index (PMI) will be on watch, with market participants potentially hoping to see a softer read on both fronts to give US policymakers some breathing room in terms of tightening. Current expectations are for the ADP data to moderate to 153,000 from previous 177,000, while the US services PMI is expected to soften to 53.6 versus the previous 54.5. Higher Treasury yields and a firm US dollar have not been well-received by silver prices lately, but there is an attempt for prices to hold up around the US$20.75 level with the formation of a bullish pin bar on the daily chart overnight. A move above yesterday’s close may provide greater conviction for some short-term relief, as technical conditions tread in oversold territory while gains in the US dollar stalled overnight. Any near-term relief may find resistance at the US$22.20 level, while failure to defend the US$20.75 may pave the way towards the US$19.80 level next. Source: IG charts Asia Open Asian stocks look set for a downbeat open, with Nikkei -1.65%, ASX -0.65% and KOSPI -2.08% at the time of writing. The Reserve Bank of New Zealand (RBNZ) has kept rates on hold at 5.5% as widely expected in today’s meeting, which prompted a dip in the NZD/USD to its three-week low – a case similar to the AUD/USD on the rate hold from the Reserve Bank of Australia (RBA) yesterday. Guidance from the RBNZ that inflation is still expected to decline to within the target band by 2H 2024 and some emphasis on economic risks as a trade-off to restrictive monetary conditions may suggest that the central bank is leaning towards further wait-and-see, with the flexibility kept for one more rate hike towards the rest of the year. For the week, the NZD/USD seems to be eyeing for a retest of its September low, as failure to sustain above its weekly Ichimoku cloud pattern continues to put a downward trend in place. Its weekly Relative Strength Index (RSI) is also trading below the key 50 level as a reflection of sellers in control, failing to defend recent gains on a firmer US dollar and broad risk-off sentiments. The lower channel trendline may be on watch next as potential near-term support, followed by its October 2022 low at the 0.550 level. Source: IG charts On the watchlist: Suspected intervention at the 150.00 level for USD/JPY met with dip-buying There was a suspected FX intervention by Japanese authorities for the USD/JPY at the key psychological 150.00 level overnight, but dip buyers were quick to halt the weakness, which continued to see the pair hold around its 11-month high. The case seems similar to September 2022, where the first round of intervention by authorities failed to support the Japanese yen amid the policy divergence between the Fed and the Bank of Japan (BoJ). Buyers may attempt to retest the key 150.00 level once more, with any failure for authorities to provide a more aggressive signal likely to challenge their credibility and could pave the way for the pair towards the 152.00 level next (October 2022 top formed on second round of intervention). On the downside, yesterday’s dip-buying at the 147.30 level will serve as immediate support to hold. Source: IG charts https://www.dailyfx.com/news/asia-day-ahead-usd-jpy-firm-despite-potential-intervention-nzd-usd-at-3-week-low-20231004.html
2023-10-03 04:37
NIKKEI 225, FTSE 100, S&P 500 PRICES AND ANALYSIS Initial Nikkei 225 Monday rally fizzles out The Nikkei 225 began the day on a positive footing and rose to the 55-day simple moving average (SMA) at 32,415.9 as Japan Q3 business sentiment climbed the highest in five quarters before sellers regained the upper hand and pushed the index back down towards its 31,665.4 September low. It and the 25 August low at 31,563.2 may be revisited while the 55-day SMA caps. Were this level to give way in October, the August low at 31,251.2 would be eyed. Immediate resistance sits around the 32,000 mark and further minor resistance at the 22 September low at 32,167.9, followed by the mid-September low and the 55-day SMA at 32,396.5 to 32,415.7. NIKKEI 225 DAILY CHART FTSE 100 begins Q4 below its 200-day simple moving average (SMA) The FTSE 100 tried to stay above the 200-day simple moving average (SMA) at 7,650 on the last day of the third quarter but didn’t manage to do so and is beginning the last quarter of the year in a subdued mood. Resistance above the 200-day SMA can be spotted at Friday’s 7,675 high and the 7,688 June high. Further potential resistance comes in between the 7,723 July peak and the September high at 7,747. These highs will need to be exceeded for the psychological 7,800 mark and the 8 May high at 7,817 to be back in the frame. Minor support sits at last Wednesday’s low at 7,553. Only a fall through last week’s low at 7,523 would open the door to the psychological 7,500 region. FTSE100 DAILY CHART S&P 500 mixed despite averted US government shutdown The S&P 500 begins the fourth quarter in a cautious mood despite US legislators agreeing to a temporary solution to keep the government open for 45 more days. A rise above not only Friday’s high at 4,332 needs to occur but also the late June to August lows at 4,328 to 4,337 for the 10 July low at 4,378 to be reached. Slips should find support around Friday’s low at 4,274 ahead of the September low at 4,239. Below it lies the major 4,214 to 4,187 support zone which consists of the early and late May highs and the 200-day simple moving average (SMA). S&P 500 DAILY CHART https://www.dailyfx.com/news/nikkei-225-ftse-100-and-s-p-500-begin-q4-on-a-cautious-note-20231002.html
2023-10-03 04:36
GOLD (XAU/USD) ANALYSIS, PRICE, AND CHART US Treasury yields remain near recent multi-year peaks. Gold is closing in on the late-February low at $1,805/oz. US Treasury yields remain within touching distance of multi-year highs head of a speech later in the session by Fed Chair Jerome Powell. While financial markets are attributing a near 75% probability that the US central bank will leave rates unchanged at the November 1st meeting, further out that probability drops to mid-50%. CME FEDWATCH PROBABILITIES TOOL Elevated US bond yields are weighing heavily on gold and silver and with yields expected to stay elevated in the near future, the going looks tough for gold. While these bond yields are high, it may be that they are close to their short-term peaks if rates are not going to move higher. A week packed full of US jobs data, and the previously mentioned speech by Chair Powell will decide the near-term direction for US government debt. US TREASURY 2YR YIELD DAILY CHART US TREASURY 10YR YIELD DAILY CHART DailyFX Economic Calendar Gold continues to print bearish candles with the precious metal losing nearly 6% of its value since September 20th. The break and open below the cluster of all three simple moving averages at the start of last week accelerated the sell-off, while prior support between $1,893/oz. and $1,885/oz. failed to stem the move lower. A prior swing low at $1,805/oz. is now the next level of support before the 61.8% Fibonacci retracement level at $1,794/oz. comes into play. The CCI indicator is in oversold territory due to the recent sell-off and this may slow further losses until the reading normalizes. GOLD DAILY PRICE CHART – OCTOBER 2, 2023 Chart via TradingView https://www.dailyfx.com/news/gold-latest-xau-usd-slump-continues-as-us-bond-yields-remain-elevated-20231002.html